Introduction

This is the fourth in a series of exercises designed to assist you in building and applying your accounting

knowledge. Though the structure and composition may differ, almost all companies have both current and

long$-$term liabilities. Knowing how to account for these liabilities and related transactions is essential.

Assignment

P$1.$ Vieques Corporation sells scenic sightseeing trips to rural towns in Puerto Rico. Over the last several

years, the company has become interested in purchasing a used airplane. Instead of issuing common stock,

the company decides to issue bonds. The company issued $$1,000,000$ of $8\%$ three$-$year bonds at $97$ on

January $1,2018.$ Interest is paid semiannually on January $1$ and July $1.$ Vieques Corporation uses the

straight$-$line method of amortization.

The corporation would like to better understand the bond issue. Using the table below as a guide,

calculate the interest expense, amortization of any discount, and the carrying value of the bond at

the end of each year for the life of the bond.

Make the appropriate journal entries for each of the following events:

$2018$

January $1-$ Bond issuance

July $1-$ Interest payment

December $31-$ Record any accrued interest on the bonds

December $31-$ Bond redemption at maturity